ACG 2021 Ch. 5 FSU

Myers and Company sold $1,800 of merchandise on account to Oscar, Inc. on March 1 with credit terms of 2/10, n/30. Oscar returned $500 of the merchandise due to poor quality on March 3. If Oscar pays for the purchase on March 11, what entry does Myers make to record receipt of the payment?

$1,274 debit to Cash, $26 debit to Sales Discount, and $1,300 credit to Accounts Receivable This entry correctly accounts for the check Oscar would be writing for this invoice after adjustment for the returned merchandise and the discount. ($1,800 - $500) - [($1,800 - $500) × 2%] = $1,274.

Sampson Company's accounting records show the following account balances: Sales $ 430,000 Purchases 325,000 Beginning Inventory 32,000 Ending Inventory 29,000 Purchase Returns and Allowances 6,000 Using the periodic system, the cost of goods sold is

$322,000 Cost of goods sold = Beginning inventory + purchases - purchase returns & allowances - purchase discounts - ending inventory Cost of goods sold = 32,000 + 325,000 − 6,000 - 0 - 29,000 = 322,000

Financial information about Edwards Incorporated is presented below: Operating expenses $ 28,000 Sales returns and allowances 7,000 Sales discounts 3,000 Sales revenue 150,000 Cost of goods sold 91,000 What is the company's gross profit?

$49,000 Net sales = Sales - Sales returns & allowances - Sales discounts Net sales = $150,000 - 7,000 - 3,000 = $140,000 Gross profit = Net sales - cost of goods sold Gross profit = $140,000 - 91,000 = $49,000

Arbol Corporation reports the following: Sales revenue $181,000; ending inventory $12,600; beginning inventory $15,000; purchases $65,600; purchases discounts $2,500; purchase returns and allowances $1,500; freight-in $600; freight-out $800. Calculate the cost of goods sold.

$64,600 Cost of goods sold equals the beginning inventory plus purchases minus purchases discounts and purchases returns and allowances plus freight-in minus ending inventory.Cost of goods sold = 15,000 + 65,600 - 2,500 - 1,500 + 600 - 12,600 = 64,600.

Given the following quality of earnings ratios, which suggests the company may be using the most conservative accounting techniques?

1.8 Since this ratio is significantly greater than 1, it suggests the use of the most conservative accounting techniques.

Helix Company purchased merchandise with an invoice price of $3,000 and credit terms of 2/10, n/30. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms?

36% The company buying merchandise can wait 10 days and still receive a 2% discount. Otherwise, it can wait an additional 20 days and pay the full invoice amount without being overdue. In other words, a 20-day difference produces 2% interest. An interest rate of 2% in 20 days is equivalent to an interest rate of 36% in 360 days (i.e., 2% x 360/20).

Hinckley Corporation has the following: Cost of goods sold $ 85,000 Operating income 10,000 Sales discounts 3,000 Sales returns and allowances 12,000 Sales revenue 140,000 Net income 5,000 Which of the following is closest to this company's profit margin?

4% Net sales = Sales revenue minus sales returns and allowances minus sales discountsNet sales = 140,000 - 12,000 - 3,000 = 125,000 Profit margin = Net income divided by net salesProfit margin = 5,000/125,000 = 0.04 (or 4%).E,5,6,4

Which of the following is not a component of the operating cycle of a merchandising company?

Borrow money from a bank

Cosmos Corporation, which uses a perpetual inventory system, purchased $2,000 of merchandise on July 5 on account. Credit terms were 2/10, n/30. It returned $400 of the merchandise on July 9. Which of the following is one effect when Cosmos pays its bill on July 21?

Credit to Cash for $1,600 The discount terms are 2/10, n/30 which indicates a 2% discount if paid within 10 days but the full amount is due otherwise. Since the bill is paid after the discount period, the full invoice amount is $2,000 minus the returned goods of $400, or $1,600. The entry to record payment will debit Accounts Payable for $1,600 and credit Cash for $1,600.

Under the perpetual system, cash freight costs incurred by the buyer for the transporting of goods being received is recorded in which account?

Inventory

Which of the following accounts is debited when a company using the perpetual inventory system buys merchandise inventory?

Inventory

Marsh Company uses the perpetual inventory system. Which of the following transactions neither increases nor decreases its inventory account?

Marsh paid freight costs to ship goods from Marsh to a customer. In a perpetual inventory system, companies record increases to inventory when they buy it and when customers return it, and they record decreases to inventory when they sell it. Paying freight charges to acquire inventory is part of the cost of buying inventory. However, the entry to record the payment of freight costs to ship goods to a customer decrease cash and increase freight out (i.e., delivery expense); it does not affect the inventory account. Similarly, when a grants a customer an allowance by reducing the purchasing price it does not affect the inventory account because sales allowances increase the Sales Returns and Allowances account (debit it) and decreases accounts receivable (credit it).

Which statement is true when goods are purchased for resale by a company using a periodic inventory system?

Purchases on account are debited to the Purchases account. In a periodic inventory system, all purchases of inventory are debited to the Purchases account and freight costs incurred when purchasing inventory are debited to the Freight-In account (or the Transportation-In account). Freight-In and Transportation-In are synonyms.Chapter 5, Learning objective 8

A company's gross profit rate is lower this year compared to the prior year. Which of the following would not be a possible cause for this decline in the gross profit rate?

The company began selling products with a higher markup.

Jackson Company uses a perpetual inventory system. On November 30, it purchased $10,000 of merchandise and it must pay the $200 shipping charges. The credit terms for the merchandise were 2/10, n/30. The company paid for both the merchandise and the shipping charges nine days after their invoice dates. Which of the following is part of the required journal entry when Jackson pays the shipping charges of $200?

a debit to Inventory for $200 In a perpetual inventory system, all of the cost of acquiring merchandise (including the cost of having the inventory delivered to the purchaser) is recorded as part of the cost of the inventory. The cost of the merchandise and the shipping charges should both be debited to the inventory account. Suppliers sometimes offer discounts (such as 2/10, n/30). However, discounts are offered by suppliers of merchandise and not by shippers. The journal entry for paying the shipping charges includes a debit to inventory for $200 and a credit to cash for $200.

merchandisers

companies that buy and sell merchandise

service companies

companies that do not sell merchandise, sell their services to customers

retailers

companies that sell directly to consumers

The Sales Returns and Allowances account is classified as a(n)

contra revenue account. Contra revenue accounts include: 1. Sales discounts 2. Sales returns and allowances Contra revenue accounts are used to compute net sales. Both normally have debit balances while revenue normally has a credit balance.

when using the periodic inventory system a physical inventory count is used to determine

cost of goods sold

The operating expenses section of an income statement for a merchandising company would not include

cost of goods sold Operating expenses relate to a business's main of operations. Cost of goods sold is directly related to the operating activity of a company. The other choices are non-operating expenses.

Marsh, Inc. uses the perpetual inventory system. It paid for freight costs to ship merchandise to a customer. Besides the cash account, what account will Marsh record?

freight-out The entry to record the payment of freight costs for goods shipped to a customer requires a debit to Freight-out and a credit to cash. Freight-out is not part of the cost of inventory; it is a delivery expense and appears among the operating expenses on the income statement. In contrast, freight-in is used to record the shipping costs associated with acquiring inventory (note: when using a perpetual inventory system, the shipping cost associated with acquiring inventory is debited to Inventory).

Tommy's Market uses a perpetual inventory system to record the following events involving a recent purchase of inventory: i. On July 1, purchased merchandise for $50,000, terms 1/10, n/30. ii. On July 3, paid freight costs of $300 on merchandise purchased. iii. On July 6, returned $1,200 of merchandise to the supplier. iv. On July 9, paid the amount due to the supplier. As a result of these events, Tommy's Market Company's inventory

increased by $48,612. [(Purchase - purchase returns) x (100% - discount percentage] [(50,000 - 1,200) x 99% + 300 = 48,612

wholesalers

merchandising companies that sell to retailers

Under what inventory system is cost of goods sold determined after each sale?

perpetual inventory system Under the perpetual inventory system, cost of goods sold is determined with each sale.

How is gross profit measured?

sales revenue minus cost of goods sold Gross profit equals net sales minus cost of goods sold.

which of the following ordinarily has the shortest operating cycle?

service companies because they do not purchase or produce inventory

Freight costs incurred by a seller on outgoing merchandise sold to customers are recorded as Freight Out and these costs will increase

the operating expenses of the seller.